Letter to LAO About State’s Obligation to UCRP Funding

May 11, 2010

Legislative Analyst Mac Taylor
Legislative Analyst’s Office
925 L Street, Suite 1000
Sacramento, CA 95814
Fax 916-324-4281

Dear Mr. Taylor,

As the release of the May revise approaches, and the discussions that will come with it, I felt it was important to write to you about the issue of state funding for UC employee retirement. I fear your office has given somewhat mixed messages on the issue recently, and I strongly believe that the issue is so critical that we can not afford any lack of clarity on the subject.

In the “2009-10 Budget Analysis Series Higher Education,” you acknowledge: “We expect, as do UC’s actuaries, that UCRP’s fall 2009 valuation will show that its funded status has dropped below 100 percent for the first time in over 20 years. Keeping the pension plan’s funded status near the 100 percent level—the state’s policy for its major pension funds—will require an end to the funding holiday” (HED-63). However, you then go on to reject UC’s modest request of $20 million restart of state contributions, because the $20 million number was “arbitrary.”

To make matters worse, in a more recent publication, the “2010-11 Budget: California’s Fiscal Outlook,” your office wrote: “Our forecast assumes no additional state contributions between 2009-10 -2014-15 to cover costs of UC’s pension and retiree health programs.” This despite the fact that UCRP was no longer fully funded. We feel it is reckless to assume no state contributions to UCRP. The default position, at this point, should be that the state fund its share of UCRP; if not the state will be acting in reckless and negligent disregard for its fiduciary responsibility.

I’d also like to point out the importance of considering commitments the state and University made in the past when making recommendations to the Legislature. For example, in the “2009-10 Budget Analysis Series Higher Education,” your office recommended: “that the Legislature deviate from its existing state policy in one key way—require UC employees to cover a portion of the costs of any future benefit enhancements or unfunded liabilities that might emerge in UCRP.” This would contradict the promise UC made in 1963, when UC was trying to get its employees to convert from PERS to UCRP, that UCRP would always provide comparable benefits and cost employees and the state less than PERS. In fact, since PERS improved benefits in the late 1990’s (which is part of why PERS is now underfunded) and UCRP did not; this commitment is already at issue. Let us not exacerbate the situation by proposing unique payment burdens on UC employees. Unlike other public pension funds, UC did not greatly increase benefits a decade ago. The current funding problem was not caused by UC, but by the state for refusing to contribute to the pensions of UC employees.

Without adequate state contributions, the quality of UC will be substantially degraded. Retirement benefits are a significant part of total compensation. It is only when the UC retirement program is considered that total compensation approaches competitiveness with comparison institutions. Without a state contribution, either benefits must be slashed and the University will not be able to attract high quality faculty or the money must be extracted from the already starved operating budget with direct negative consequences for teaching and research.

In addition, by not making its contribution at a level adequate to return the fund to health, the University forgoes the ability to collect over twice its own contribution from the non-state fund sources that support twice as many UC employees as are supported by state funds.

Thank you for your attention to these issues,

Joe Kiskis
CUCFA Vice President for External Relations,
and Professor of Physics, UC Davis

cc: Steve Boilard

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